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The State of Commercial Fleet Management in 2013

There is ongoing pressure to contain fleet costs due to corporate cost-cutting initiatives. Pressure for spend reductions is occurring at all levels within corporations, and fleet operations is simply another department mandated to cut costs. Reducing fleet costs is a constant, never-ending struggle for all fleet managers. Despite an improved business climate, many companies continue to remain cautious in terms of capital expenditures. Most fleets are seeking cost reductions by increasing operational efficiencies.

For instance, fuel efficiency considerations have become a greater factor in vehicle selector decisions. Many fleets are mandating minimum mpg requirements before a vehicle can be added to a selector. In addition, companies are looking to rightsize vehicles in reaction to cost containment and fuel-efficiency initiatives.

Operating Cost Trends

An ongoing challenge facing today’s fleets continues to be the elevated cost of fuel. As the largest cost component of operating expenses, fleet managers are focusing on a multitude of fuel-reduction strategies. The shock from fuel-price spikes in prior years prompted many fleets to downsize to smaller vehicles and engine displacement to increase overall fleet fuel economy.

A corollary concern is the ongoing fuel-price volatility, which has kept managing fuel spend a top concern for fleet managers, who, in turn, are being pressured by management to search for ways to improve overall fuel efficiency.

The industry has been experiencing fuel-price volatility since 2002. A key reason is that there are pre-existing weaknesses in the nation’s refining infrastructure. For example, no new refineries have been built in the U.S. since the Garyville, La., refinery went online in 1976. This has resulted in limited refining capacity, especially for the production of reformulated gasoline, which increases the frequency of regional spot shortages.

Fleets are taking a multi-pronged approach to control fuel costs, such as spec’ing four-cylinder, instead of six-cylinder, engines, implementing anti-idling programs, and increasing the number of hybrids in operation. Other fleets are using telematics and GPS to improve route optimization and gain the ability to locate nearby low-cost fueling stations while on the road. Some are increasing personal-use charges to recoup higher fuel costs.

Fleet managers are also seeking to control fuel costs at the driver level by setting tighter and more frequent exception reporting. A parallel approach involves driver education/behavior modification by encouraging drivers to maintain proper tire pressure, drive less aggressively, and minimize unnecessary idling.

One bright spot has been maintenance costs, which have remained flat as the quality of vehicles from all OEMs continue to steadily improve, and extended powertrain warranties have covered some expensive repairs at higher mileages. However, one operating expense that has been on the rise is the cost for replacement tires. A key factor to higher tire prices is commodity-price increases for raw materials, in particular the higher cost of oil, which is a key ingredient in tire manufacturing.

Another positive trend is with resale values, which continue to remain strong. Today’s resale values are strong, as dealer demand continues to exceed wholesale supply. It’s not that demand is substantially greater for used vehicles; rather, demand is strong because the inventory of used vehicles in the wholesale market is low. However, used-vehicle supply will increase in reaction to increased new-vehicle sales. This will cause resale prices to moderate as supply matches demand in the wholesale market.

Cost continues to be the largest challenge to reducing a fleet’s environmental impact. In today’s economic environment, many companies are cautious about spending money without a quick, proven payback. However, corporate sustainability initiatives will play a greater role in vehicle acquisition. The increased number of hybrid models and body styles available from OEMs will facilitate this trend.

There is increased concern about vehicle and driver safety and minimizing liability exposure, which is often being driven by senior management. Fleets are seeing an uptick in preventable accident frequency, primarily due to driver distraction. Driver distraction has become a major issue due to employees multitasking behind the wheel and the widespread proliferation of smart phones and other handheld data devices.

Despite some negative trends, the 2013 calendar-year, on the whole, promises to be a good one for the commercial fleet management industry.

If you think being a fleet manager is stressful, try being a Navy SEAL. Former Navy SEAL Robert O'Neill, best known for claiming to have shot Osama bin Laden, recently wrote a new book entitled, “The Operator.”

Conventional wisdom in the fleet market is often wrong. If we roll back the calendar, the conventional wisdom about fuel prices was that there would be ebbs and flows in price per gallon rates, but the overall price trajectory would trend upward. The flaw with conventional wisdom is that it only works when no new variables are inserted into future projections. A case in point is the shale oil revolution, which now has experts predicting oil prices will remain flat for the foreseeable future.

Summer is a busy time in fleet. There’s an abundance of next-model-year OEM fleet meetings, new-model intros, and industry conferences, which offer ample opportunities to “talk fleet” with the movers and shakers of our industry. If you want to know what's happening in the fleet market, you need to talk with fleet managers -- lots of them.

Senior management exerts intense pressure on fleet managers to control and/or reduce vehicle acquisition and operating expenses. To accomplish this, a fleet managers can pursue three different cost-control strategies — cost savings, cost deferral, or cost avoidance. In order to implement a successful cost-control strategy you need to institutionalize the mechanisms to curb money-wasting behaviors.

To be successful on a sourcing team, you need to be open-minded about exploring all available service channels and partners. However, open-minded doesn’t mean being open-headed. You must listen and entertain new ideas, but also temper such a practice and attitude with pragmatism and knowledge.

In the long run, technology will exert inexorable downward pressure on overall fleet size and will eliminate altogether the need for some fleet vehicles. Despite this, fleet management will survive, albeit in a smaller capacity, and, most likely, in a completely different form than what we know today.

I asked one fleet manager how he spec’ed replacement trucks for his fleet application. He related that many years earlier an OEM rep spec’ed out his trucks and he has been using the same formula ever since. While this may work in some cases, specifications should be defined by today’s fleet application to ensure the replacement truck is designed to accommodate current operational requirements rather than trying to make your operation conform to trucks spec’ed for yesteryear’s requirements.

Reducing fleet costs is a constant, never-ending struggle for all fleet managers, especially since every aspect of fleet management revolves around money. In lieu of requesting additional budget dollars, one course of action is to stop the waste of existing dollars.It is estimated that, on average, 5-10% of a fleet’s annual budgeted dollars are wasted.

One challenge to global fleet management is adjusting to different fleet terminology for different regions. One example is the difference between the use of “model-year” and “calendar-year” in describing the year of a fleet vehicle.

Properly identifying payload parameters is the foremost consideration to properly spec’ing a truck. To illustrate this fact, the weight of the payload will determine the engine, transmission, size of tire, frame, and just about everything else.

Looking ahead, how will procurement and fleet evolve in the future? My prediction is there will be market forces (both internal and external), along with technological enhancements, that will facilitate a much closer collaboration between the two disciplines using a combination of in-house and outsourced expertise.